What to Expect from This Week’s BOE “Super Thursday”

Move over, Super Bowl. Market players will have another nail-biter to look out for!

On Thursday at 12:00 PM GMT the Bank of England (BOE) will publish its monetary policy decision for the month of February. It’s not just a policy statement either. It’s “Super Thursday,” yo!

If you’re a newbie forex trader, lemme tell you that “Super Thursday” refers to the quarterly simultaneous release of the BOE monetary policy statement, Monetary Policy Committee (MPC) meeting minutes, and the Inflation Report. That’s a trifecta of major catalysts for the pound’s forex moves!

Why are these reports important?

Aside from the BOE policy decision, the release of the MPC meeting minutes could also push pound pairs around because this would reveal whether committee members are leaning more towards the dovish or hawkish side.

The icing on the cake and what makes this Super Thursday super is the BOE Inflation Report, which contains more deets on the central bank’s growth and inflation outlook and provides clues on what policymakers are planning next.

Downgraded forecasts could indicate that monetary stimulus might stay in place for much longer while upgraded estimates could suggest that the central bank is gearing up to tighten soon.

What happened last time?

First rate hike in ten years

As widely expected, the BOE made good on its September hints to raise its interest rates for the first time since 2007, pushing it from 0.25% to 0.50%

More importantly, Governor Mark Carney confirmed speculations of TWO more rate hikes from the central bank, saying that “We in fact need those two additional rate increases in order to get that return of inflation to target.”

The vote wasn’t unanimous

Not all nine MPC members voted for a hike. Apparently, Deputy Governors Jon Cunliffe and Dave Ramsden felt that wage growth was too weak to justify an interest rate increase in November.

“Very gradual” rate hike schedule

What took market players by surprise was BOE members revealing that they’re expecting “very gradual” rate hikes from that point forward.

Can’t really blame Carney and his gang for their cautiousness. For one thing, they’re still expecting inflation to peak above 3.0% before going back down. And they believe that that normalization, coupled with the “gently rising path of Bank Rate,” will eventually bring inflation to their 2.0% targets.

And then there’s the small matter of Brexit. They believe that uncertainties around the unprecedented event could weigh on domestic activity and make the economy more prone to inflationary pressures.

Pound traders didn’t like the dovish hike

Not surprisingly, traders didn’t like that the BOE isn’t on a rate hike binge as they expected after all. That’s like releasing the first episode of the last Game of Thrones season and telling us that we won’t see the next one until 2020!

Overlay of GBP Pairs: 1-Hour Forex Chart

Whether it’s profit-taking from the widely-expected rate hike or tantrum over the dovish rate hike, the pound fell against its counterparts across the board and stayed low for the rest of the week.

What are market players expecting this time?

Since BOE members weren’t too hot about another rate hike last time, market players are expecting a 0-0-9 vote against any major policy changes this month.

Instead, all eyes will be on the Quarterly Inflation Report and Carney’s letter to the Chancellor. Specifically, market geeks will want to see if BOE thinks inflation – which has been hitting 3.0% for the past couple of months – has already hit its peak and is on its way down…or not.

Pound bulls and bears will also watch for opinions on the Brexit negotiations. If you recall, Carney himself admitted that the pace of their rate hikes will by highly influenced by the kind of deals the U.K. government manages to secure with the EU.

Last but not the least is the pound’s exchange rate, which has been flirting with its strongest levels against the dollar since the Brexit vote brouhaha.

If the BOE thinks that the pound’s strength will have a significant impact in dragging inflation lower, then it will give members a bit more flexibility with their rate hike pace.

TL;DR?

Back in November, BOE members said “mmmkay” to two more rate hikes. Thing is, they also said that rates would take the “gently rising” path due to Brexit uncertainties and expectations of high inflation gradually absorbing spare capacity.

Fast forward to today when inflation HAS been rising by around 3.0% and Brexit negotiations have (more or less) shown more clarity. Add to that the recent pound strength and the BOE just might have changed its tune on the pace of its rate hikes.

Before you price in a hawkish BOE event, however, take note that recent U.K. reports have printed to the downside and could limit the BOE’s optimism on the economy.

If Carney and his gang choose to project caution over optimism, then we might see the pound lose some of its gains against its major counterparts.

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